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Pastimes : Ask Mohan about the Market -- Ignore unavailable to you. Want to Upgrade?

To: vegetarian who wrote (10357)	12/6/1997 3:01:00 PM
From: edward miller	Respond to of 18056

>Wonder if there are any theories relating to such divergences? I just did a quick calculation of the net divergence from the low just before the big rally to the August top. As of this chart's date the small caps are up about 26% compared to 28.8% for large cap stocks. Overall it seems there is little real NET divergence. If we think about this pattern, I suspect there are explanations - and each has his/her own I am sure. Here is my take on this: 1. After the rally into August, the market has been "correcting", to use a turn that is neutral. The non-tracking behavior signals stock rotation, first into small caps, then into large caps. Is this a consolidation instead of the prelude to a disasterous 1998? Perhaps, but my personal feeling is that we are seeing flight to quality which would likely be a prelude to a down 1998. In examining the timing of the rotation, the flight from small caps may be linked to the mushrooming Asian crisis, so big money may be suddenly jumping ship, hence running to large caps. Small caps are just dead since the late October downdraft. I am posting because I can see it more than one way. Any other thoughts on this? My point is that if you look at the August to present picture as one continuum instead of two separate patterns you can see a potentially different scenario. 2. I suggest we all follow this pattern development into January because it could give a clear signal to individual investors as to where the fund money is flowing. Continued flight to quality in January will change to picture to decidedly bearish. Just MHO. 3. As I think about my post and add comments, I get more bearish! The big question is this: Are my feelings a contrary indicator? Hmmmmm. Ed Miller